Education / Commodities
"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it"
 Warren Buffett
 A commodity is something that is freely traded. It can easily be physically delivered and stored for a period of time. Commodities prices are determined on the basis of an active market, and not by the supplier or seller on a "cost-plus" basis.
Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges. Commodity is the contract and this underlying standard defines the commodity, not any quality inherented in the product. Markets for trading commodities can be very efficient and will quickly respond to changes in supply and demand to find an equilibrium price and quantity.
Main commodities exchanges are:
- Chicago Board of Trade
- Chicago Mercantile Exchange
- Euronext.liffe
- London Metal Exchange
- Kansas City Board of Trade
- Minneapolis Grain Exchange
- Multi Commodity Exchange
- New York Mercantile Exchange
- New York Board of Trade
- Winnipeg Commodity Exchange
Commodities on exchanges are bought and sold in standardized Contracts and have to correspond to certain requirements to be successfully exchanged in the future market:
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It has to be standardized and, for agricultural and industrial commodities, must be in a basic, raw, unprocessed state.
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Perishable commodities must have an adequate shelf life, because delivery on a futures contract is deferred.
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The cash commodity's price must fluctuate enough to create uncertainty, which means both risk and potential profit.
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